A mother of four has vowed to take legal action challenging new anti-squatting legislation.

Irene Gardiner has lived as a squatter in a cottage in Newchapel, near Llanidloes, south Wales, for the past 11 years.

The 49-year-old, who shares her home with her two youngest children, Hazel, 15, and Sol, 13, fears she could face prosecution after a change in the law, under which squatters could face a £5,000 fine or even prison.

Gardiner branded the changes unfair, saying she has paid council tax since moving into her home. Lawyers acting for the charity shop worker have said they believe any action taken against her would be in breach of the Human Rights Act.

Ugo Hayter, part of Gardiner's legal team at Leigh Day & Co, said the estimated cost of the legislation could be as high as £790m. He said taxpayer's money would be wasted on processing squatters through the courts as well as police and councils having to use their resources on rehousing those evicted.

"This legislation will have impacts on the most vulnerable people in society, and will be a further burden on already strained public services," Hayter said. "There is existing criminal and civil law which enables property owners to swiftly evict squatters, and homeowners will derive no further protection from this new legislation. It will simply criminalise the homeless."

The new offence, introduced under clause 144 of the Legal Aid, Sentencing and Punishment of Offenders Act, will be punishable by up to six months' jail and fines up to £5,000 in England and Wales.

The change in the law affects only residential, not commercial, premises. In a circular sent out to judges, courts and the police, the Ministry of Justice confirmed that what are commonly known as "squatters' rights" – preventing forcible entry to an occupied building – would become redundant in relation to residential premises.

The housing minister, Grant Shapps, said last week: "No longer will there be so-called squatters' rights. Instead … we're tipping the scales of justice back in favour of the homeowner and making the law crystal clear: entering a property with the intention of squatting will be a criminal offence."

For a guilty verdict prosecutors will have to prove that a squatter entered the building knowing he or she was a trespasser and intended to remain.